# EXAMINATION PRIORITIES

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A6cf8a12a052c20f1

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

U.S. Securities and
Exchange Commission

2024

EXAMINATION PRIORITIES

Division of Examinations

CONTENTS
MESSAGE FROM THE LEADERSHIP TEAM ........................................................................................................................1
DIVISION OF EXAMINATIONS – FISCAL YEAR 2024 EXAMINATION PRIORITIES......................................5
I.

Investment Advisers.......................................................................................................................................7
A. Examinations of Investment Advisers...............................................................................................7
B. Examinations of Investment Advisers to Private Funds...........................................................10

II.

Investment Companies................................................................................................................................. 11

III.

Broker-Dealers................................................................................................................................................ 13
A. Regulation Best Interest....................................................................................................................... 13
B. Form CRS....................................................................................................................................................14
C. Broker-Dealer Financial Responsibility Rules...............................................................................14
D. Broker-Dealer Trading Practices........................................................................................................14

IV.

Self-Regulatory Organizations.................................................................................................................. 15
A. National Securities Exchanges........................................................................................................... 15
B. Financial Industry Regulatory Authority........................................................................................ 15
C. Municipal Securities Rulemaking Board......................................................................................... 16

V.

Clearing Agencies.......................................................................................................................................... 16

VI. Other Market Participants.......................................................................................................................... 17
A. Municipal Advisors.................................................................................................................................. 17
B. Security-Based Swap Dealers............................................................................................................. 18
C. Transfer Agents........................................................................................................................................ 18
VII. Risk Areas Impacting Various Market Participants........................................................................... 18
A. Information Security and Operational Resiliency....................................................................... 18
B. Crypto Assets and Emerging Financial Technology.................................................................. 19
C. Regulation Systems Compliance and Integrity...........................................................................20
D. Anti-Money Laundering.........................................................................................................................2 1
VIII. Conclusion....................................................................................................................................................... 22

DISCLAIMER: This statement represents the views of the staff of the Division of Examinations. It is not a rule, regulation,
or statement of the U.S. Securities and Exchange Commission (SEC or Commission). The Commission has neither approved
nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend
applicable law, and it creates no new or additional obligations for any person.

2024 EXAMINATION PRIORITIES | 1

MESSAGE FROM THE LEADERSHIP TEAM
In the more than ten years since the publication of the Division of Examinations’ (Division)
first annual examination priorities, there has been a dramatic growth in, and increased
complexity of, the U.S. capital markets and its participants. At the same time, we have
seen financial products and technological tools offered to investors continue to evolve at
greater speed. Despite these exponential changes, the Division has remained resilient and
endeavored to keep pace with risks in the marketplace. As the speed of this transformation
in the markets continues to accelerate, the Division continues to evolve how we conduct
examinations and engage with market participants.
With over 1,100 staff members spread across eleven regional offices and in Washington, DC,
Division staff are engaged with market participants through examinations and proactive
outreach continuously throughout the year. These interactions form a critical connection
between the U.S. Securities and Exchange Commission (SEC or Commission) and the
capital markets, giving Division staff and staff across the agency a ground level view of
developments in the financial industry. Guided by the Division’s “four pillar” mission – to
promote compliance, prevent fraud, monitor risk and inform policy – our experienced
and talented staff gain a unique perspective of the industry and risks in the markets which
informs both what we do as a Division and the Commission more broadly.
We are pleased to provide you with the examination priorities for fiscal year 2024. This
year, for the first time, we are aligning the publication of our priorities with the start of the
fiscal year with the hope that it will better inform investors and registrants of the key risks,
trends, and examination topics that we plan to focus on in the upcoming year. This step,
along with focused engagement with the industry and investors through our national and
regional outreach events and a greater presence of our examiners in the field, are just a few
examples of our intention to provide more transparency and to continue to move forward
together with investors and the industry to promote compliance.

A LOOKBACK AT FISCAL YEAR 2023
As part of our commitment to fulfilling our “four pillars,” Division staff carried out critical
work over the last twelve months through focused and targeted examinations and outreach,
fostered compliance through proactive engagements with the industry, and uncovered
fraudulent conduct through our risk-based examination process. Completion of these
examinations has been no simple task, and the high quality and efficiency in which they
were conducted is a testament to the hard work of a committed and focused staff with a
mission to serve investors.

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In the three years since the beginning of the pandemic, we have continued to transform how
we carry out examinations and communicate observations and other important information
to market participants. With the nationwide return to the office earlier this year, we have been
proactive in utilizing what we have learned over the past three years to enhance how we work
and communicate with market participants, while incorporating many of the efficiencies into
our processes. Division staff have also continued to conduct more in-person fieldwork, and
in many instances, provided virtual options to both examiners and registrants to participate
in different stages of an examination to broaden access. We have also sought to actively
manage the process of identifying the need for and publication of risk alerts that summarize
examination observations as well as preview to registrants potential examination scope areas
focusing on compliance with new rules.
Last fiscal year, the Division published nine risk alerts providing observations that touch on
a diverse cross-section of examination topics, including observations related to: (i) compliance
with Regulation S-ID and firms’ development and implementation of an identity theft
prevention program; (ii) broker-dealer compliance related to Regulation Best Interest;
(iii) issues identified in recent newly-registered investment adviser examinations; (iv) issues
concerning LIBOR-transition preparedness by investment advisers and investment companies;
and (v) compliance with anti-money laundering regulation. We also used our risk alerts to
highlight areas that certain examinations might cover, such as highlighting staff’s focus on
different aspects of the Marketing Rule under the Advisers Act.
In fiscal year 2023, we also continued our robust engagement with investors, investor groups,
industry, and regulatory partners, by participating both virtually and in-person, in various
speaking engagements and national and regional compliance events. Notably, the Division
held its semi-annual National Compliance Outreach seminar virtually in November 2022,
further extending the impact and reach of the event. Over 10,000 compliance and industry
professionals attended the event, which included discussions of a variety of key topics for
senior officers of registered investment advisers and investment companies. We also continued
to coordinate and share experiences and information with other federal and state regulators,
as well as with self-regulatory organizations. The Division also launched a series of joint
regulatory trainings with FINRA staff to enhance communication and collaboration between
both regulators related to our respective examination programs. By collaborating with one
another through these trainings, our aim was not only to enhance communication between
Division and FINRA staff, but also to learn about one another’s examination methodology,

2024 EXAMINATION PRIORITIES | 3

and how both organizations protect investors, ensure compliance, and preserve market
integrity. Our regional offices also took the lead in developing and organizing several
compliance focused events by collaborating with other regulators, as well as industry and
professional associations within their respective regions.
Although fiscal year 2023 continued to place greater demands on the Division’s resources,
we strived for more efficiency and effectiveness in carrying out our examinations
while being responsible and nimble. Last year, the Division implemented a number of
internal changes to align our resources to developments in the markets and the evolving
regulatory landscape. For instance, we centralized the monitoring and data function for
security-based swaps into the Office of Security Based Swaps within the Broker-Dealer
Exchange Program. We also established specialized teams within our different examination
programs, allowing us to better address emerging issues and risks associated with crypto
assets, financial technology, such as artificial intelligence, and cybersecurity, among others.
Finally, we continued to strengthen our leadership team by bringing onboard a number of
key senior and advisory positions and building additional capacity in various examination
programs to keep pace with the rapidly developing market ecosystem consistent with
Congress’ fiscal year 2023 appropriation.

CONTINUING TO MOVE FORWARD TOGETHER
The theme of evolving with the markets and remaining flexible in the ever-changing
markets also carries over to our engagement with registered firms, investors, and the
industry. More specifically, we acknowledge that changes in the regulatory landscape
will impact many registrants and other market participants. As the industry prepares to
meet new regulatory requirements, similarly, the Division will need to consider the impact
of these rules, which will influence potential examinations, compliance risks and new focus
areas. To support the industry, we expect to increase our engagement through increased
in-person fieldwork, compliance outreach events, speaking engagements, among other
touchpoints.
Since the publication of our fiscal year 2023 priorities approximately eight months ago,
we have advanced our mission as reflected in this year’s priorities, which provide both
continuity and change to reflect a fluid and evolving economic and regulatory landscape.
Given the shorter interval in between the publication of our priorities, several initiatives
and focus areas from last year remain as fiscal year 2024 priorities.

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FINAL NOTES
As we look ahead this fiscal year, the Division will build upon our past accomplishments
and efforts, strive to do more, and continue to adapt to the ever-changing markets.
Continuing to use our “four pillars” as our foundation, we will remain both resilient
and willing to adjust our priorities as the U.S. capital markets and market participants,
as well as products they offer, continue to rapidly evolve. In doing so, we hope to
increase the level of transparency across the range of activities in which we are engaged.
We remain energized and determined to take on more challenges and make this year even
more successful.

Richard R. Best
Director

Natasha Vij Greiner
Deputy Director and
National Investment
Adviser/Investment
Company Program
Director

Marshall M. Gandy
National Investment
Adviser/Investment
Company Program
Director

Keith E. Cassidy

Deputy Director and
National Technology
Controls Program
Director

Kevin W. Goodman
National FINRA and
Securities Industry
Oversight Program
Director

Allison M. Fakhoury
National Clearance
and Settlement
Program Director

Michael G. Rufino
National BrokerDealer and Exchange
Program Director

Division of Examinations

2024

EXAMINATION
PRIORITIES

2024 EXAMINATION PRIORITIES | 7

FISCAL YEAR 2024 EXAMINATION PRIORITIES
The Division of Examinations (Division) prioritizes examinations of certain practices,
products, and services that it believes present potentially heightened risks to investors
or the integrity of the U.S. capital markets. This year’s examinations will prioritize areas
that pose emerging risks to investors or the markets, as well as examinations of core and
perennial risk areas.

I. INVESTMENT ADVISERS
A. Examinations of Investment Advisers
As a fiduciary, an investment adviser owes a duty of care and a duty of loyalty to
its clients. An adviser must, at all times, serve the best interest of its clients and not
subordinate its clients’ interest to its own. In other words, an investment adviser cannot
place its own interests ahead of the interests of its clients. In addition, an adviser is
required to eliminate or make full and fair disclosure of all conflicts of interest which
might incline the adviser—consciously or unconsciously—to render advice which is not
disinterested such that a client can provide informed consent to the conflict. Examining for
advisers’ adherence to their duty of care and duty of loyalty obligations remains a priority
for the Division. In reviewing advisers’ adherence to this fiduciary standard, the Division
continues to focus on:
• Investment advice provided to clients with regard to products, investment strategies,

and account types, particularly those regarding: (1) complex products, such as
derivatives and leveraged exchange-traded funds (ETFs); (2) high cost and illiquid
products, such as variable annuities and non-traded real estate investment trusts
(REITs); and (3) unconventional strategies, including those that purport to address
rising interest rates. Examination focus may be emphasized for investment advice
provided to certain types of clients, such as older investors and those saving for
retirement.
• Processes for determining that investment advice is provided in clients’ best

interest, including those processes for (1) making initial and ongoing suitability
determinations, (2) seeking best execution, (3) evaluating costs and risks, and
(4) identifying and addressing conflicts of interest. Such assessments will also
review the factors advisers consider in light of the clients’ investment profiles,
including investment goals and account characteristics. Examinations will review

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how advisers address conflicts of interest, including (1) mitigating or eliminating
the conflicts of interest, when appropriate, and (2) allocating investments to
accounts where investors have more than one account (e.g., allocating between
accounts that are adviser fee-based, brokerage commission-based, and wrap fee,
as well as between taxable and non-taxable accounts).
• Economic incentives that an adviser and its financial professionals may have to

recommend products, services, or account types, such as the source and structure
of compensation, revenue, or other benefits. Such economic incentives may exist
when there is revenue sharing, markups, or other incentivizing revenue arrangements.
Examinations will focus on the economic incentives and conflicts of interest
associated with advisers that are dually registered as broker-dealers, use affiliated firms
to perform client services, and have financial professionals servicing both brokerage
customers and advisory clients to identify, among other things: (1) investment advice
to purchase or hold onto certain types of investments (e.g., mutual fund share classes)
or invest through certain types of accounts when lower cost options are available; and
(2) investment advice regarding proprietary products and affiliated service providers
that result in additional or higher fees to investors.
• Disclosures made to investors and whether they include all material facts relating

to conflicts of interest associated with the investment advice sufficient to allow a client
to provide informed consent to the conflict.
The Division remains focused on advisers’ compliance programs, including whether their
policies and procedures reflect the various aspects of the advisers’ business, compensation
structure, services, client base, and operations, and address applicable current market risks.
The Division’s review of advisers’ annual reviews of the effectiveness of their compliance
programs is an important part of assessing whether the
advisers’ conflicts of interests are addressed in the advisers’
The Division remains focused on
compliance programs, including those conflicts created by
advisers’ compliance programs,
the advisers’ business arrangements or affiliations and
including whether their policies and
related to adviser and registered investment company fees
procedures reflect the various aspects
and expenses.
of the advisers’ business, compensation
structure, services, client base, and
operations, and address applicable
current market risks.

The examination focus on compliance policies and
procedures may include one or more of the following
areas, as discussed in the adopting release for the
compliance rule (Compliance Rule) under the Investment

2024 EXAMINATION PRIORITIES | 9

Advisers Act of 1940 (Advisers Act):1 (1) portfolio management processes; (2) disclosures
made to investors and regulators; (3) proprietary trading by the adviser and the personal
trading activities of supervised advisory personnel; (4) safeguarding of client assets from
conversion or inappropriate use by advisory personnel; (5) the accurate creation of
required records and their maintenance in a manner that secures them from unauthorized
alteration or use and protects them from untimely destruction; (6) safeguards for the
privacy protection of client records and information; (7) trading practices; (8) marketing
advisory services; (9) processes to value client holdings and assess fees based on those
valuations; and (10) business continuity plans. Compliance program reviews will also
assess whether the policies and procedures are sufficient to support compliance with
advisers’ fiduciary obligations.
Particular examination focus will include:
• Marketing practice assessments for whether advisers, including advisers to private

funds, have: (1) adopted and implemented reasonably designed written policies
and procedures to prevent violations of the Advisers Act and the rules thereunder
including reforms to the Marketing Rule; (2) appropriately disclosed their marketingrelated information on Form ADV; and (3) maintained substantiation of their
processes and other required books and records. Marketing practice reviews will
also assess whether disseminated advertisements include any untrue statements of a
material fact, are materially misleading, or are otherwise deceptive and, as applicable,
comply with the requirements for performance (including hypothetical and
predecessor performance), third-party ratings, and testimonials and endorsements.
• Compensation arrangement assessments focusing on: (1) fiduciary obligations of

advisers to their clients, including registered investment companies, particularly
with respect to the advisers’ receipt of compensation for services or other material
payments made by clients and others; (2) alternative ways that advisers try to
maximize revenue, such as revenue earned on clients’ bank deposit sweep programs;
and (3) fee breakpoint calculation processes, particularly when fee billing systems are
not automated.
• Valuation assessments regarding advisers’ recommendations to clients to invest

in illiquid or difficult to value assets, such as commercial real-estate or private
placements.
1 Advisers Act Rule 206(4)-7. See also SEC, Final Rule: Compliance Programs of Investment Companies
and Investment Advisers, IA-2204 (Dec. 17, 2003).

10 | U.S. SECURITIES AND EXCHANGE COMMISSION

• Safeguarding assessments for advisers’ controls to protect clients’ material non-public

information, particularly when multiple advisers share office locations, have
significant turnover of investment adviser representatives, or use expert networks.
• Disclosure assessments to review the accuracy and completeness of regulatory filings,

including Form CRS, with a particular focus on inadequate or misleading disclosures
and registration eligibility.
The Division is also focused on advisers’ policies and procedures for: (1) selecting and
using third-party and affiliated service providers; (2) overseeing branch offices when
advisers operate from numerous or geographically dispersed offices; and (3) obtaining
informed consent from clients when advisers implement material changes to their advisory
agreements. Such reviews will assess, among other things, whether the advisers’ policies
and procedures are reasonably designed and implemented and whether the procedures
prevent the advisers from placing their interests ahead of clients’ interests.
As with previous years, the Division continues to prioritize examinations of advisers that
have never been examined, including recently registered advisers, and those that have not
been examined for a number of years.

B. Examinations of Investment Advisers to Private Funds
Advisers to private funds remain a significant portion of the SEC-registered investment
adviser population. The Division will continue to focus on advisers to private funds and
prioritize specific topics, such as:
• The portfolio management risks present when there is exposure to recent market

volatility and higher interest rates. This may include private funds experiencing poor
performance, significant withdrawals and valuation issues and private funds with
more leverage and illiquid assets.
• Adherence to contractual requirements regarding limited partnership advisory

committees or similar structures (e.g., advisory boards), including adhering to any
contractual notification and consent processes.
• Accurate calculation and allocation of private fund fees and expenses (both

fund-level and investment-level), including valuation of illiquid assets, calculation of
post commitment period management fees, adequacy of disclosures, and potential
offsetting of such fees and expenses.

2024 EXAMINATION PRIORITIES | 11

• Due diligence practices for consistency with policies, procedures, and disclosures,

particularly with respect to private equity and venture capital fund assessments of
prospective portfolio companies.
• Conflicts, controls, and disclosures regarding private funds managed side-by-side with

registered investment companies and use of affiliated service providers.
• Compliance with Advisers Act requirements regarding custody, including accurate

Form ADV reporting, timely completion of private fund audits by a qualified auditor
and the distribution of private fund audited financial statements.
• Policies and procedures for reporting on Form PF, including upon the occurrence of

certain reporting events.

II. INVESTMENT COMPANIES
The Division continues to prioritize examinations of registered investment companies,
including mutual funds and ETFs, due to their importance to retail investors, particularly
those saving for retirement.
Examinations of registered investment companies often include assessing, among other
things, their compliance programs and fund governance practices, disclosures to investors,
and accuracy of reporting to the SEC. In assessing registered investment companies’
compliance programs and governance practices, the Division will review boards’ processes
for assessing and approving advisory and other fund fees,
particularly for funds with weaker performance relative to their
The Division continues to
peers. In addition, the Division will review registered investment
prioritize examinations of
company valuation practices, particularly for those addressing
registered investment companies,
fair valuation practices (e.g., implementing board oversight
including mutual funds and ETFs,
duties, setting recordkeeping and reporting requirements, and
due to their importance to retail
overseeing valuation designees), and, as applicable, will assess the
investors, particularly those
effectiveness of registered investment companies’ derivatives risk
saving for retirement.
management and liquidity risk management programs.

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Examination focus areas may include:
• Fees and expenses and reviewing whether registered investment companies have

adopted effective written compliance policies and procedures concerning the
oversight of advisory fees and implemented any associated fee waivers and
reimbursements. A particular focus will be on: (1) charging different advisory
fees to different share classes of the same fund; (2) identical strategies offered by
the same sponsor through different distribution channels but that charge differing
fee structures; (3) high advisory fees relative to peers; and (4) high registered
investment company fees and expenses, particularly those of registered investment
companies with weaker performance relative to their peers. Examinations will also
review the boards’ approval of the advisory contract and registered investment
company fees.
• Derivatives risk management assessments to review whether registered investment

companies as well as business development companies have adopted and
implemented written policies and procedures reasonably designed to prevent
violations of the Commission’s fund derivatives rule (Investment Company Act Rule
18f-4). Review of compliance with the derivatives rule may include review of the
adoption and implementation of a derivatives risk management program, board
oversight, and whether disclosures concerning the registered investment companies’
or business development companies’ use of derivatives are incomplete, inaccurate
or potentially misleading. Examinations may also cover the associated registered
investment companies’ or business development companies’ procedures for, and
oversight of, derivative valuations.
In addition, the Division will review for compliance with the terms of exemptive order
conditions and the issues associated with recent market dislocations and volatility, such
as whether registered investment companies in liquidation are following liquidation
procedures.
As with adviser examinations, the Division continues to prioritize examinations of
registered investment companies that have never been examined, including recently
registered investment companies, and those that have not been examined in a number
of years.

2024 EXAMINATION PRIORITIES | 13

III. BROKER-DEALERS
A. Regulation Best Interest
Regulation Best Interest establishes the standard of conduct for broker-dealers at the
time they recommend to a retail customer a securities transaction or investment strategy.
When making such a recommendation, a broker-dealer must act in the retail customer’s
best interest and cannot place the financial or other interest of the broker-dealer ahead
of the customer’s interest. This obligation is satisfied only if the broker-dealer complies
with the following specified component obligations: (1) providing certain required
disclosure, before or at the time of the recommendation, about the recommendation and
the relationship between the retail customer and the broker-dealer (Disclosure Obligation);
(2) exercising reasonable diligence, care, and skill in making
the recommendation (Care Obligation); (3) establishing,
Regulation Best Interest establishes
maintaining, and enforcing policies and procedures
the standard of conduct for brokerreasonably designed to address conflicts of interest (Conflict
dealers at the time they recommend
of Interest Obligation); and (4) establishing, maintaining,
to a retail customer a securities
and enforcing policies and procedures reasonably designed
transaction or investment strategy.
to achieve compliance with Regulation Best Interest
(Compliance Obligation).
In reviewing whether broker-dealer recommendations are in customers’ best interest, areas
of particular interest will include: (1) recommendations with regard to products, investment
strategies, and account types; (2) disclosures made to investors regarding conflicts of interest;
(3) conflict mitigation practices; (4) processes for reviewing reasonably available alternatives;
and (5) factors considered in light of the investor’s investment profile, including investment
goals and account characteristics.
Examinations will focus on those recommended products that are: (1) complex, such as
derivatives and leveraged ETFs; (2) high cost, such as variable annuities; (3) illiquid, such
as nontraded REITs and private placements; (4) proprietary; and (5) microcap securities.
Examinations may also focus on recommendations to certain types of investors, such as
older investors and those saving for retirement or college.
As part of the examinations, the Division will evaluate whether the broker-dealer has
established, maintained, and enforced written policies and procedures reasonably designed
to achieve compliance with the areas described above as well as with Regulation Best
Interest as a whole. This analysis will include considering whether the written policies and
procedures are reasonably designed based on the costs, risks, and rewards of the securities
and investment strategies that the broker-dealer recommends to customers.

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The Division will also continue to focus on dual registrants and examinations will
encompass firms’ conflicts of interest, account allocation practices (e.g., allocation of
investments where an investor has more than one type of account) and account selection
practices (e.g., brokerage versus advisory and wrap fee accounts). Examinations will also
assess broker-dealers supervision of branch office locations.

B. Form CRS
The Division’s examinations will review the content of a broker-dealer’s relationship
summary, such as how the broker-dealer describes: (1) the relationships and services that it
offers to retail customers; (2) its fees and costs; and (3) its conflicts of interest, and whether
the broker-dealer discloses any disciplinary history. These examinations will also evaluate
whether broker-dealers have met their obligations to file their relationship summary with the
Commission and deliver their relationship summary to retail customers.

C. Broker-Dealer Financial Responsibility Rules
Examinations will focus on broker-dealer compliance with the Net Capital Rule and the
Customer Protection Rule and related internal processes, procedures and controls. Areas
of review will include fully paid lending programs and broker-dealer accounting for certain
types of liabilities, such as reward programs, point programs, gift cards and non-brokerage
services, and will also assess broker-dealer credit, interest rate, market, and liquidity risk
management controls to assess whether broker-dealers have sufficient liquidity to manage
stress events.

D. Broker-Dealer Trading Practices
Examinations will cover broker-dealer equity and fixed income trading practices. In
particular, examinations will review compliance with: (1) Regulation SHO, including the
rules regarding aggregation units and locate requirements; (2) Regulation ATS, and whether
the operations of alternative trading systems are consistent with the disclosures provided in
Forms ATS and ATS-N; and (3) Exchange Act Rule 15c2-11.
During examinations of wholesale market makers, examinations may include quote
generation, order routing and execution practices, market data ingestion, regulatory
controls, and risk management.

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IV. SELF-REGULATORY ORGANIZATIONS
A. National Securities Exchanges
Examinations will focus on whether national securities exchanges are meeting their
obligations to enforce compliance with self-regulatory organization rules and the federal
securities laws. Specifically, examinations will focus on exchange order handling and
exchange surveillance, investigation, and enforcement programs to detect and discipline
member firm violations. In addition, examinations will focus on exchange oversight of
regulatory service agreements.

B. Financial Industry Regulatory Authority
The Financial Industry Regulatory Authority (FINRA) oversees approximately 3,400
brokerage firms, 150,000 branch offices, and more than 620,000 registered representatives
through examinations, enforcement, and surveillance. In addition, FINRA, among
other things, promulgates rules that govern its members, provides a forum for securities
arbitration and mediation, conducts market regulation, including by contract for
a majority of national securities exchanges, reviews broker-dealer advertisements,
administers the testing and licensing of registered persons, and operates industry utilities,
such as Trade Reporting Facilities.
The Division conducts risk-based oversight examinations of FINRA. It selects areas within
FINRA to examine through a risk assessment process designed to identify those aspects
of FINRA’s operations important to the protection of investors and market integrity,
including FINRA’s implementation of investor protection initiatives such as Regulation
Best Interest and Form CRS. The analysis is informed by collecting and analyzing extensive
information and data, regular meetings with key functional areas within FINRA, and
outreach to various stakeholders, including industry and investor groups. Based on the
outcome of this risk assessment process, the Division conducts inspections of FINRA’s
major regulatory programs. The Division also conducts oversight examinations of FINRA’s
examinations of certain broker-dealers and municipal advisors that are FINRA members.
From its observations during all of these inspections and examinations, the Division makes
detailed recommendations to improve FINRA’s programs, its risk assessment processes,
and its future examinations.

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C. Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board (MSRB) regulates the activities of brokerdealers that buy, sell, and underwrite municipal securities, and municipal advisors. The
MSRB establishes rules for municipal broker-dealers (including registered municipal
securities dealers) and municipal advisors, supports market transparency by making
municipal securities trade data and disclosure documents available, and conducts education
and outreach regarding the municipal securities markets.
The Division, along with FINRA and the federal banking
The Municipal Securities Rulemaking
regulators, conducts examinations of registered firms to assess
Board regulates the activities of
compliance with MSRB rules, and applicable federal securities
broker-dealers that buy, sell, and
laws. The Division also applies a risk assessment process,
underwrite municipal securities, and
similar to the one it uses to oversee FINRA, including outreach
municipal advisors.
to various stakeholders, to identify areas to examine at the
MSRB.

V. CLEARING AGENCIES
Title VIII of the Dodd-Frank Act requires the Commission to examine, at least once
annually, each clearing agency designated as systemically important and for which the
Commission serves as the supervisory agency. Pursuant to Section 807 of the Dodd-Frank
Act, these examinations will focus on clearing agencies’ core risks, processes, and controls
and will cover the specific areas required by statute, including the nature of clearing
agencies’ operations and assessment of financial and operational risk. Additionally,
the Division will conduct risk-based examinations of other
registered clearing agencies that have not been designated
Title VIII of the Dodd-Frank Act
as systemically important. The Division will examine
requires the Commission to
the registered clearing agencies for compliance with the
examine, at least once annually,
Commission’s Standards for Covered Clearing Agencies, which
each clearing agency designated
are rules that require covered clearing agencies to have policies
as systemically important and for
and procedures that address, among other things, maintaining
which the Commission serves as the
sufficient financial resources, protecting against credit risks,
supervisory agency.
managing member defaults, and managing operational and
other risks.
Examinations of registered clearing agencies include both risk-based examinations and
Corrective Action Reviews, and are undertaken to assess: (1) whether the clearing agencies’
respective risk management frameworks comply with the Exchange Act, and serve the

2024 EXAMINATION PRIORITIES | 17

needs of their members and the markets they serve; (2) the adequacy and timeliness of
their remediation of prior deficiencies, including, for example, the role of senior leadership
in the remediation process; and (3) other risk areas identified in collaboration with the
Commission’s Division of Trading and Markets and other regulators. In addition, the
Division also examines security-based swap data repositories, as well as entities operating
pursuant to a Commission order exempting them from the clearing agency registration
requirement under Section 17A(b)(1) of the Exchange Act.
Areas of examination focus in fiscal year 2024 may include risk management of liquidity,
models and model validation, margin systems, third-party service providers, and
operations, and the internal audit function, among other things. Finally, the Division
consults with the Federal Reserve Board each year on the scope and methodology of the
Commission’s Dodd-Frank examinations, as required by that Act, and routinely consults
with the Commission’s Division of Trading and Markets concerning risks it observes in
its supervisory role over the above clearing agencies. These risks are incorporated into the
risk-based planning of the examinations.

VI. OTHER MARKET PARTICIPANTS
A. Municipal Advisors
Examinations will continue to review whether municipal advisors have met their fiduciary
duty obligation to clients, particularly when providing advice regarding the pricing, method
of sale, and structure of municipal securities. Examiners will review whether municipal
advisors are complying with their obligations to document municipal advisory relationships
and disclose conflicts of interest and requirements related to
registration, professional qualification, continuing education,
New MSRB Rule G-46, which
recordkeeping, and supervision.

becomes effective on March 1,

New MSRB Rule G-46, which becomes effective on March 1,
2024, is designed to establish the core standards of conduct
for solicitor municipal advisors, which include disclosure of
conflicts of interest and documentation of client relationships,
among other things. Examinations of solicitor municipal
advisors during the second half of fiscal year 2024 will focus
on compliance with new MSRB Rule G-46.

2024, is designed to establish the
core standards of conduct for
solicitor municipal advisors, which
include disclosure of conflicts of
interest and documentation of client
relationships, among other things.

18 | U.S. SECURITIES AND EXCHANGE COMMISSION

B. Security-Based Swap Dealers
Examinations will continue to focus on whether security-based swap dealers have
implemented policies and procedures related to compliance with security-based swap rules
generally and are meeting their obligations under Regulation SBSR to accurately report
security-based swap transactions to security-based swap data repositories. Moreover,
examinations will focus on whether security-based swap dealers are complying with
applicable capital, margin, and segregation requirements and relevant conditions in
Commission orders governing substituted compliance.

C. Transfer Agents
Examinations will focus on transfer agent processing of items and transfers, recordkeeping
and record retention, safeguarding of funds and securities, and filings with the Commission.
Examinations will also focus on transfer agents that service certain types of issuers, including
those issuing microcap and crypto asset securities, and transfer agents that use emerging
technologies to perform their transfer agent functions.

VII. RISK AREAS IMPACTING VARIOUS MARKET PARTICIPANTS
A. Information Security and Operational Resiliency
The Division will continue to review broker-dealers’ and advisers’ practices to prevent
interruptions to mission-critical services and to protect investor information, records, and
assets. Operational disruption risks remain elevated due to the proliferation of cybersecurity
attacks, firms’ dispersed operations, intense weather-related events, and geopolitical
concerns. Given these risks and concerns, cybersecurity remains a perennial focus area for all
registrants.
The Division will focus on registrants’ policies and procedures, internal controls, oversight of
third-party vendors (where applicable), governance practices, and responses to cyber-related
incidents, including those related to ransomware attacks. Part of this review will consider
whether registrants adequately train staff regarding their identity theft prevention program
and their policies and procedures designed to protect customer records and information.
With respect to third-party products and services in particular, the Division will continue
to assess how registrants identify and address risks to essential business operations. In
connection with its mission to inform policy, the Division will also look at the concentration
risk associated with the use of third-party providers, including how registrants are managing
this risk and the potential impact to the U.S. securities markets.

2024 EXAMINATION PRIORITIES | 19

In addition, many broker-dealers and advisers consist of a main office and multiple other
branch offices. Examinations of broker-dealers and advisers will continue to look at firms’
practices to prevent account intrusions and safeguard customer records and information,
including personally identifiable information, especially as it pertains to their multiple
other offices.
Lastly, the Commission adopted rule changes to shorten
the standard settlement cycle for most broker-dealer
transactions from two business days after the trade date to
one business day after the trade date. In connection with
this change, the Division will assess registrant preparations
associated with this shortening of the settlement cycle,
which has a compliance date of May 28, 2024.

The compliance date for recently
adopted rules shortening the standard
settlement cycle for most broker-dealer
transactions to one business day after
the trade date is May 28, 2024.

Examinations of broker-dealers and advisers will continue to look at firms’ practices to
promote cyber resiliency. Reviews will include firm practices, policies, and procedures to
prevent account intrusions and safeguard customer records and information, including
personally identifiable information. Additional focus will be on the cybersecurity issues
associated with the use of third-party vendors, including registrant visibility into the
security and integrity of third-party products and services. The Division will also review
whether there has been an unauthorized use of third-party providers.

B. Crypto Assets and Emerging Financial Technology
The Division continues to observe the proliferation of certain types of investments,
including crypto assets and their associated products and services, and emerging financial
technology, such as broker-dealer mobile applications
and advisers choosing to provide automated investment
The Division continues to observe
advice to their clients. The Division will focus on brokerthe proliferation of certain types of
dealers and advisers offering new products and services
investments, including crypto assets
or employing new practices, particularly technological
and their associated products and
and online solutions that service online accounts aimed at
services, and emerging financial
meeting the demands of compliance and marketing. The
technology, such as broker-dealer
Division remains focused on certain services, including
mobile applications and advisers
automated investment tools, artificial intelligence, and
choosing to provide automated
trading algorithms or platforms, and the risks associated
investment advice to their clients.
with the use of emerging technologies and alternative
sources of data.

20 | U.S. SECURITIES AND EXCHANGE COMMISSION

Given the continued volatility of, and activity around, the crypto asset markets, the
Division will continue to monitor and, when appropriate, conduct examinations of
registrants. Examinations of registrants will focus on the offer, sale, recommendation
of, advice regarding, trading in, and other activities in crypto assets or related products.
Specifically, reviewing whether such registrants involved with crypto assets: (1) meet and
follow their respective standards of conduct when recommending or advising customers
and clients regarding crypto assets, with a focus on an initial and ongoing understanding
of the products, to the extent required by the applicable standard of conduct, particularly
when the investors are retail-based (including older investors) and investments involve
retirement assets; and (2) routinely review, update, and enhance their compliance
practices (including crypto asset wallet reviews, custody practices, Bank Secrecy Act
(BSA) compliance reviews, and valuation procedures), risk disclosures, and operational
resiliency practices (i.e., data integrity and business continuity plans), if required. With
respect to crypto assets that are funds or securities, the Division will consider whether
advisers are complying with the custody requirements under the Advisers Act (Rule
206(4)-2). In addition, the Division will assess whether any technological risks associated
with the use of blockchain and distributed ledger technology have been addressed,
including whether compliance policies and procedures are reasonably designed, accurate
disclosures are made and the risks pertaining to the security of crypto asset securities are
addressed, if required by applicable law.

C. Regulation Systems Compliance and Integrity
The Commission adopted Regulation Systems Compliance and Integrity (SCI) in 2014
to strengthen the technology infrastructure of the U.S. securities markets. Regulation
SCI entities include national securities exchanges, registered and certain exempt clearing
agencies, FINRA, MSRB, plan processors, and alternative trading systems that meet
certain volume thresholds. Among other things, these critical market infrastructure
entities must establish, maintain, and enforce written policies and procedures reasonably
designed to ensure that their systems’ capacity, integrity, resiliency, availability,
and security is adequate to maintain their operational capability and promote the
maintenance of fair and orderly markets. The Division will continue to evaluate whether
SCI entities have established, maintained, and enforced written policies and procedures,
as required. One area of focus will include whether the policies and procedures of SCI
entities are reasonably designed to ensure the security of the SCI systems, including the
physical security of the systems housed in data centers, as required.

2024 EXAMINATION PRIORITIES | 21

D. Anti-Money Laundering
The BSA requires certain financial institutions, including broker-dealers and certain
registered investment companies, to establish anti-money laundering (AML) programs
that are tailored to address the risks associated with the firm’s location, size, and
activities, including the customers they serve, the types of products and services offered,
and how those products and services are offered. These programs must, among other
things, include policies, procedures, and internal controls reasonably designed to achieve
compliance with the BSA and its implementing rules; independent testing; and risk-based
procedures to perform customer due diligence (as required by the Customer Due Diligence
rule), which includes identifying and verifying the identity of customers and conducting
ongoing monitoring to identify and report suspicious transactions. Where appropriate,
certain financial institutions must also file Suspicious Activity Reports (SARs) with the
Financial Crimes Enforcement Network. SARs can be used to detect and combat market
manipulation, insider trading, Ponzi schemes, corruption, money laundering, terrorist
financing, and a variety of other illicit activities potentially violative of securities and other
laws and regulations.
The Division will continue to focus on AML programs to review whether broker-dealers
and certain registered investment companies are: (1) appropriately tailoring their AML
program to their business model and associated AML risks; (2) conducting independent
testing; (3) establishing an adequate customer identification program, including for
beneficial owners of legal entity customers; and (4) meeting their SAR filing obligations.
Examinations of certain registered investment companies will also review policies and
procedures for oversight of applicable financial intermediaries.
Also, the Division will review whether broker-dealers and advisers are monitoring
Office of Foreign Assets Control sanctions and ensuring compliance with such sanctions.

22 | U.S. SECURITIES AND EXCHANGE COMMISSION

VIII. CONCLUSION
These priorities reflect the Division’s assessment of certain risks, issues, and policy
matters arising from market and regulatory developments, information gathered
from examinations, and other sources, including tips, complaints, and referrals, and
coordination with other Divisions and Offices at the Commission as well as other
regulators. While the Division will allocate significant resources to the examination issues
described herein, it will also conduct examinations focused on and devote resources to new
or emerging risks, products and services, market events, and investor concerns.
The Division welcomes comments and suggestions regarding how it can better fulfill its
mission to promote compliance, prevent fraud, identify and monitor risk, and inform
Commission policy. Our contact information is available at https://www.sec.gov/exams.
If you suspect or observe activity that may violate the federal securities laws or otherwise
operates to harm investors, please notify Commission staff at https://www.sec.gov/tcr.

U.S. Securities and
Exchange Commission
100 F Street NE
Washington, DC 20549
SEC.gov

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A6cf8a12a052c20f1. Public record. Not legal advice.